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Larry Robbins usually describes the approach of his $6.4 billion hedge-fund firm, Glenview Capital Management, as "suggestivist," cultivating amicable working relationships with corporate management to propose shareholder-friendly changes. Now he's becoming an activist for the first time, challenging one of his holdings in a proxy contest that is under way.

The switch in tactics isn't the result of any shortfall in Glenview's performance. Its flagship, the $4.8 billion Glenview fund, returned 26.8% last year, and over 10 years has provided an annualized 13.4% gain to its investors, due in large part to Robbins' focus on health-care stocks. His 13-year-old firm today has 72 employees and occupies the 44th floor of the prestigious General Motors Building on Fifth Avenue.

Top performer Robbins is getting more aggressive, waging his first proxy fight—against one of his many health-care holdings.
Roger Hagadone for Barron's

There, he and his team conduct bottom-up research, searching for long-term investments in large-cap growth companies that have advantages beyond the direction of the economic cycle. The team makes pretty big bets: As of June 30, the Glenview fund's top-10 positions represented about two-thirds of its total assets.

He's the rare Wall Streeter who likes the Affordable Care Act, better known as Obamacare, which extends insurance coverage to all U.S. citizens. "There were a lot of irrational fears around Obamacare," he says. Investors, for instance, initially sold shares of insurers before realizing they wouldn't necessarily fare badly.

Most recently, Robbins, who named his firm after his suburban Chicago youth hockey team, has been bullish on hospitals: One of his main investment themes is labeled "beds in 2014," highlighting the expansion in insurance coverage that starts next year. As he notes, "Customers receive care from those hospitals regardless of insurance."

But previously, the hospitals "collected only four cents on the dollar from the average cost" of an uninsured patient. By next year, the hospitals could be reimbursed for as much as 100% of those costs.

"This reform math supports a 10% uplift in Ebitda [earnings before interest, taxes, depreciation, and amortization] at for-profit hospitals," he says. Historically, the industry has averaged 6% organic annual growth in Ebitda. Starting next year, that should jump to the low- to midteens and continue until 2016, when it "may revert back to mid-single-digit growth." If immigration reform occurs and gives new citizens access to health care, that amounts to "a free call option" on hospital stocks.

ROBBINS' PUSH FOR changes stems from his belief that hospitals are "underleveraged" and should be buying back stock. "In early 2012, when we entered hospital stocks, they were trading at mid-single-digit multiples of Ebitda, and had the ability to lever [by offering debt] that four times," he says.

An example of what's possible is hospital owner Tenet Healthcare, of which Glenview is now the largest shareholder. When Glenview first took a stake, Tenet had so much cash and debt capacity it "could have bought back every single share in about 19 months," he notes. Tenet executives realized they could "allocate capital to share repurchase while maintaining responsible leverage," he says. "To their credit," they already had bought back 26% of the stock. And after talks with Glenview and other shareholders, Tenet went further, issuing $800 million in bonds in October 2012, using $500 million to buy more shares and $300 million for acquisitions.

The stock price has more than doubled, to $43 today.

In the case of his proxy target, Health Management Associates, the hospital company could repurchase 47% of its common equity by the end of 2014 by raising leverage to 4.5 times Ebitda from 3.7 times, and using excess balance-sheet cash and free cash flow for share repurchases. HMA stock trades at $15 a share, just 6.5 times Glenview's 2014 Ebitda estimate, and Robbins estimates the stock could be worth twice that in two years.

He says he doesn't care whether HMA boosts its share price via a takeover or by buying back stock. Thus far, Robbins and his team haven't been allowed to meet with management to suggest improvements, he says.

So, the former University of Pennsylvania hockey player is taking his case to other shareholders. Glenview holds just under 15% of the common and has put forth a slate of eight board members. He believes that the stock's less-than-1% return over the 10 years ending Dec. 31, 2012 demands change at the top. Robbins has spoken to some of the other investors. "As a careful organization," he says, "we wanted to know that we weren't the only ones dissatisfied with a lost decade of performance and lack of focus on issues we believe are critical." Institutional Shareholder Services, which advises institutions on proxy votes, is expected to come out with its recommendation in the first week of August, and the final date to vote is Aug. 19.

HMA, says Robbins, has spent all its capital on acquisitions, but none on share repurchases. Management, he adds, gets compensated based on growth, rather than "EPS or value per share." He'd like to see more attention paid to shareholder value.

The HMA board filed its own findings with the SEC late Thursday. In a statement released to Barron's the board said it "believes strongly that stockholders should reject Glenview's efforts," and insisted that it has created value for investors.

GLENVIEW IS UNUSUAL among the bigger hedge-fund outfits in holding stocks for years and not employing stop-losses, as do funds that trade frequently. Robbins analyzed the 76 times the firm has owned a stock that went down by 25% or more in the past three years. "If we had sold, we would have avoided $98 million in losses. But that would have cost our investors $2.2 billion in gains. Stop-losses would have cost us that," he says.

Robbins has more conviction. "The hedge-fund industry acts like traders, not owners. Lower prices have induced selling, not buying, in the marketplace. The rationale has been to preserve capital because the system could crash," he says. Glenview approaches the stock market the way Warren Buffett or John Malone do, says Robbins, adding, "Think like an owner, not like a trader."